Beam Booms After Fortune Split-Off

Beam (BEAM), a spirits company born after of the restructuring of Fortune Brands in 2011, is enjoying the results of the split-off, improving its debt management and finding strong demand for its products, which include Jim Beam bourbon whiskey and Courvoisier Cognac.

Beam's net sales hit $707.3 million during the third quarter, up 10 percent on year. Net income came to $83.4 million, or 53 cents per diluted share, up 13 percent from 47 cents in the year-ago quarter.

While Beam's products have been on the market for a while, the company in its current form is rather new. In 2011, Fortune Brands sold its Titleist and FootJoy golf product lines to FILA Korea and then split up, with Beam running the spirits assets and Fortune Brands Home & Security (FBHS) running the home fixtures and hardware business.

Executives are pleased with demand for its products, as well as the streamlined nature of the new company. "Beam delivered record third-quarter sales that grew faster than our markets," says company president and CEO Matt Shattock in an earnings statement.

"Our investments in brand building and innovation continued to pay off in broad-based global growth in the third quarter," he said. Income could have been higher, but management felt investments made now will add more value to shareholders down the road.

"As anticipated, growth in Beam's third-quarter operating income was tempered by factors including our increase of more than 20 percent in brand investment plus start-up costs related to new products. Starting here in the fourth quarter, increases in brand investment will moderate to a rate more in line with sales growth," Shattock adds.

Slim and trim

Ratings agencies like Beam in wake of the restructuring. Moody's, for example, upgraded the company's debt ratings in October.

"The upgrade is based on the company's improved risk profile as a modestly levered, very profitable pure-play spirits company with good geographic diversity and stable cash flows," Linda Montag, Moody's Senior Vice President, says in a statement.

Moody's analysts like the Beam's position as the second-largest U.S. and fourth-largest global company in the growing spirits industry.

The company has a solid brand portfolio, ample liquidity and strong and stable cash flows, Moody's analyst conclude, adding they expect Beam will be conservatively managed, marked by reducing leverage and improving margins.

Argus initiated coverage in October with a hold recommendation while Barclays Capital initiated coverage also in October with an overweight recommendation.